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Fresh From the Bench: Recent Patent Cases From the Federal Circuit

January 8, 2014

Overview

<p">Every week or so we will continue to provide summaries of cases we think clients and others might find of interest. If you have any questions about the information provided in these case summaries or wish to discuss them further, please contact Peter Heuser at 503-796-2424 or pheuser@schwabe.com.

Several patents were at issue in this case. The appeal as to a first patent was dismissed as moot ‎because the patent had expired and all of the claims had been substantively amended during ‎reexamination. Intervening rights would prevent the enforcement of claims for back damages and, ‎due to patent expiration, prospective relief would not be available. As to the other two patents, the ‎panel reversed or vacated the Board's decision for improper consideration of what ‎motivation, if any, ‎a skilled artisan at the relevant time would have had to ‎pursue the claimed ‎invention, and for improper ‎discounting of the objective indicia of non-obviousness. ‎

Citing KSR Int'l Co. v. Teleflex Inc., 550 U.S. 398, 421 (2007), the panel noted that the key issue in making ‎the obviousness determination is ‎whether the relevant skilled artisan– after reading the prior art ‎disclosures that a ‎GIIE endonuclease can promote targeted gene transfer into non-chromosomal DNA ‎in ‎prokaryotic cells– would have expected that a GIIE endonuclease would successfully ‎promote ‎targeted gene transfer into the chromosomal DNA of eukaryotic cells, and thus had good ‎reason ‎to pursue that possibility. Citing Bayer ‎Healthcare Pharms., Inc. v. Watson Pharms., Inc., 713 F.3d 1369, 1375 (Fed. Cir. 2013),‎ the panel stated the proper test as being whether one of ordinary skill in the art, at the time, have had a ‎‎"reasonable ‎expectation of success" in pursuing the possibility that succeeded and was claimed. ‎‎

According to the panel, the obviousness assessment also depends on what evidence of secondary considerations or objective ‎indicia may indicate about whether the ‎invention would have been obvious at the relevant time. Here ‎the Board failed to give ‎proper consideration to at least two categories of evidence–(1) teachings in ‎the prior art that ‎targeting a cell's chromosomal DNA could be toxic to the cell and (2) industry praise ‎and ‎licensing of Pasteur's invention– that are important to the obviousness evaluation.‎ The Board also ‎was held to have failed to recognize the significance of the fact that many others in the field ‎subsequently adopted the same method for targeting gene transfer. On remand, the Board was asked ‎to determine whether those others in the field copied the technique from an article published by the ‎inventor or the published patent application, or some other third party source. ‎

Here the Federal Circuit vacated and remanded the denial of an attorney fee award ‎for consideration of whether the patentee's doctrine of equivalents theory was objectively baseless, ‎and then, whether the totality of the circumstances demonstrated that the patentee acted with ‎subjective bad faith. ‎

Kilopass owned several patents to its embedded non-volatile memory products. Sidense ‎applied for a patent to similar products, and when that application was published Kilopass retained Perkins Coie to ‎determine whether the products disclosed in the patent application would infringe the Kilopass patents. ‎While there were recognized differences between the claimed technology and that disclosed in the Sidense application, the Perkins attorney thought there was a sufficient basis to challenge Sidense with infringement "in a friendly way." Sidense responded by explaining why there was no infringement. In response to the Sidense letter, Perkins wrote Kilopass that they still felt there was infringement as long as the memory cell in the Sidense device was as described in the patent application; however, if Sidense had replaced a first doped region with an STI region, Perkins told Kilopass that Sidense would not infringe. Shortly thereafter, Kilopass informed Perkins that Sidense had in fact redesigned its device to replace the first doped region with an STI region, so Perkins opined that there would be no infringement or that the case was "at least…much tougher."

Kilopass then retained Morrison Foerster to conduct an independent infringement analysis. MoFo initially opined that Kilopass appeared to have a valid claim that the Sidense product was at least equivalent. In the same letter, MoFo noted that the next step was "for us to conduct a more detailed investigation and analysis to confirm our initial impressions." Before this more detailed work was completed, Kilopass instructed MoFo to stop work on the project. In its subsequent bill to Kilopass, MoFo included a "preliminary infringement chart" in which it concluded that there may be a literal infringement argument that could be presented but this would require additional investigation and input from a technical expert. The chart apparently opined favorably regarding infringement under the doctrine of equivalents, but according to the Federal Circuit panel there was no evidence in the record that MoFo's analysis was complete, or that Kilopass had even considered MoFo's preliminary infringement chart. Based upon this, the panel concluded that it appeared that Kilopass "had already set their mind prior to learning MoFo's infringement analysis."

Kilopass then retained a third law firm to investigate infringement but before that firm completed its analysis, Kilopass determined that "from an engineer's perspective" Sidense infringed under the doctrine of equivalents. Based on that, Kilopass filed suit, alleging both literal infringement and infringement under the doctrine of equivalents. During the course of proceedings, the district court ruled that Kilopass was making claim construction arguments in a concurrent inter partes reexamination that were directly contrary to those being made to the court. Additionally, the court ruled that Kilopass had attempted to amend its infringement ‎contentions and advance previously undisclosed theories under the doctrine of equivalents long ‎past the applicable deadline and without the court's approval, noting that "Kilopass's assertion of a new theory of equivalence is ‎particularly inappropriate in light of evidence that Kilopass has known for many years that Sidense does not literally infringe its patents." ‎The district court then granted Sidense's motion for summary judgment of noninfringement, which was affirmed by the Federal Circuit. Sidense moved in the district court for an award of attorney fees pursuant to ‎35 USC 285, but that motion was denied based upon the court's determination that, although Sidense was the prevailing party, Sidense had not proven by clear and convincing evidence that Kilopass brought or maintained the prosecution of the action in bad faith. Sidense appealed that ruling, which is the subject of this opinion.

The Federal Circuit panel declared that to the extent the district ‎court required actual knowledge of objective baselessness, it erred. Citing the recent case of Highmark, Inc. v. Allcare Health ‎Management, 687 F.3d 1300 (Fed. Cir. 2012), subjective bad faith only requires proof that the ‎‎"lack of objective foundation for the claim ‘was either known or so obvious that it should have ‎been known' by the party asserting the claim." Like a plaintiff seeking to recover attorneys' fees under § 285 based ‎on alleged willful infringement, a defendant need only prove reckless conduct to satisfy the ‎subjective component of the § 285 analysis. In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007)‎.

In addition to any errors the district court may have made by requiring too great a showing of ‎subjective bad faith, the panel held that the court erred by taking too narrow a view of the proof that can satisfy the ‎subjective prong of the § 285 analysis. The court reached its determination that Sidense had not met its burden by focusing exclusively on evidence it ‎considered to be indicative of good faith on Kilopass's part—including opinions of counsel and ‎Kilopass's own independent infringement analysis. The panel felt this focus was inappropriately narrow, noting that subjective bad faith is ‎difficult to prove directly, essentially requiring the discovery of a smoking gun, and evidence of ‎a lack of subjective bad faith is easy to provide, as occurred here. Kilopass, knowing that it had ‎no literal infringement case, i.e., that Sidense's product was not within the scope of its claims, ‎was able to overcome Sidense's § 285 fee motion simply by showing that it had consulted ‎counsel who opined about the possibility of prevailing on an infringement claim under the ‎doctrine of equivalents. The district court ‎prematurely ended the § 285 inquiry without determining whether Kilopass's doctrine of ‎equivalents theory was objectively baseless and whether that fact or other circumstantial ‎evidence would support an inference of bad faith on the part of Kilopass.‎

According to the panel, factors such as the failure to conduct an adequate pre-suit investigation, vexatious or ‎unduly burdensome litigation tactics, misconduct in procuring the patent, or an oppressive ‎purpose are factors which can be indicative of bad faith. The wide variety of ways available to ‎establish bad faith is why our case law has long required a party seeking fees under § 285 "to ‎prove the other guilty of bad faith litigation by clear and convincing evidence in light of the ‎totality of the circumstances." Thus, the Circuit vacated the district ‎court's judgment denying fees and remanded - for consideration of whether Kilopass acted in bad ‎faith in light of the totality of the circumstances—with particular attention paid to the objective ‎merits of Kilopass's claims and other objective evidence indicative of bad faith.‎

This case is a fitting lead into the pending Supreme Court case of Icon Health and Fitness Inc. v. Octane Fitness LLC, 496 Fed. Appx. 57 (Fed. Cir. 2012), the Supreme Court briefs of which were cited in the Kilopass opinion. In Octane, the issue to be decided is whether the Federal Circuit's test for determining ‎whether ‎a case is exceptional under 35 USC 285 improperly appropriates a district court's ‎discretionary ‎authority to award attorney fees to prevailing accused infringers, thereby raising the standard for accused infringers (but ‎not patentees) to ‎recoup fees and encouraging patent plaintiffs to bring spurious patent cases.‎ In Kilopass the Federal Circuit thought the test should be the same, whether it was the patentee or the accused infringer moving to recover its attorney fees.

The case of Highmark, Inc. v. Allcare Health Management Systems Inc., 687 F.3d 1300 (Fed. Cir. 2012)‎, relied on by the panel in Kilopass, is also being heard by the Supreme Court this term. The issue in Highmark is the degree of deference to be given to a lower court judgment ‎regarding an exceptional case finding ‎under 35 USC 285.‎ ‎A Federal ‎Circuit panel ‎held that a district court's objective baselessness determination is reviewed ‎‎"without ‎deference," and en banc review was denied on a 6-5 vote.

A similar issue arose several years ago in a malpractice action brought against a Portland attorney for filing a patent infringement action despite the existence of a non-infringement opinion written by the patentee's prior IP counsel. Kilopass and this malpractice case show the importance of obtaining supplemented and complete opinions when prior written opinions express reservations about the merits of a case.